8 ms·

What if you make the rules so simple that there are NO loopholes and there is no/little possibility for tax avoidance?

by jazzyk 9y ago

aaronchall 9y ago
This would be an ideal world: > What if you make the rules so simple that there are NO loopholes and there is no/little possibility for tax avoidance? Then we could lower tax "rates", reduce dead weight loss, and increase tax receipts. But no, we've decided, for example, that home ownership is important for everyone so we subsidize home ownership by letting people write off mortgage interest. This has the unintended effect of driving up prices for homes and encouraging people to buy more home than they need. When taxes are too high, it causes pathological behavior. Some people will, even if it nets them less after taxes, minimize taxes paid. "Tax shelters" in the 80's would be all but guaranteed to lose money, and yet people would still buy into them because they would reduce their taxes and pay huge fees based on the total taxes that would be reduced. These arrangements were legal (although the IRS was hawkish on them) but actually made no business sense for investors.
- sokoloff 9y ago
  Home mortgage interest deduction serves to put the financing of private home ownership on the same footing as financing of commercial house ownership (wherein the interest on loans for income-seeking activities is deductible). Eliminating the MID without eliminating the deductibility of commercial loans' interest makes commercial purchasing of real estate cheaper than private purchasing. IOW, eliminating the MID is a big handout to commercial landlords and serves to keep even more people renting rather than owning their housing.
  - aaronchall 9y ago
    > Home mortgage interest deduction serves to put the financing of private home ownership on the same footing as financing of commercial house ownership (wherein the interest on loans for income-seeking activities is deductible). Sounds fair. Can I also reduce my income by furnishing my building (home) with equipment (e.g. furniture and appliances) in the same way that commerce can? Would that make sense? > Eliminating the MID without eliminating the deductibility of commercial loans' interest makes commercial purchasing of real estate cheaper than private purchasing. IOW, eliminating the MID is a big handout to commercial landlords and serves to keep even more people renting rather than owning their housing. There's only so much housing stock. If more are renting, there's more business in renting, but that mostly affects the mid to upper classes. Do we really want to subsidize urban sprawl? Maybe we do. Maybe we should. Should we do it forever? I... don't like it. Maybe all subsidies should have a phase-out/sunsetting period to avoid economic shocks while reducing the plethora of loop-holes and market distortions that they create.
    - sokoloff 9y ago
      > There's only so much housing stock. If more are renting, there's more business in renting, but that mostly affects the mid to upper classes. I'm not following you here. Rental market dynamics affect the lower and middle classes and the rent/buy margin affects the middle class. If the gulf between renting and buying widens (by buying becoming relatively more expensive), how does that not help landlords (mostly upper-middle and upper class), who in turn achieve increased power over the poor and middle classes (vs the status quo)? Every 750 credit score, 2 steady income, $100K household income family who doesn't buy a house but instead rents put pressure on someone worse off in the economic stack-rank.
sharemywin 9y ago
Simpler isn't always better. The simplest rule would be "no violence" but then the court system would have to make a bunch of decisions. is it literal? so is everyone that harms an insect in criminal jeopardy? So, now that we've introduced complexity we need to argue about degree not absolutes.
sharemywin 9y ago
If you believe that too much wealth equates to too much power in a democracy then the simplest tax code would be all wealth over X is taxed at 100% all transgressions are punishable by death. Personally, I think that's a little harsh but some people only see black and white.
- brianwawok 9y ago
  Hah my hft bot would double stock value of apple for 1 second and a bunch of automatic deaths would be handed down to investors.
  - ReverseCold 9y ago
    I think gp said that it would be taxed at 100%, not that one couldn't keep over x at a time.
    - brianwawok 9y ago
      Sure we started at 100% tax, and then moved on to death panels for breaking the rule ;)
charlesdm 9y ago
Because most loopholes are in fact deductions that are there for a reason. The overall tax rate is too high (or it would be too expensive to lower the overall rate), so politicians give certain people sweetheart deals on certain things because they consider it relevant, thus offering someone, somewhere a tax break. Others are then free to use the same deduction for their benefit. The wealthy aren't stupid. They're generally quite pragmatic and flexible when it comes to making money.
- jazzyk 9y ago
  Most loopholes are aimed at big corporations and high-income people ($1M+). You and I cannot take advantage of them easily. Loopholes: - obfuscate the fact that "certain" people, who should be paying 35% are not, in fact, paying a penny. - give incredible power to the people who decide what "certain" group to reward with them or threaten to withdraw them
  - charlesdm 9y ago
    You can actually use them, but probably are not, since you're a high income, high income tax paying person? If you can earn $300k a year as an entrepreneur, vs $300k as an employee, then it's a lot more likely you'll be paying significantly less taxes when going the self employed route.
logfromblammo 9y ago
I think the problem is not with the complexity of the tax code, but that those taxed by it have significant incentive to avoid paying taxes, and have the ability to manipulate information such that they can pay less. No matter how you slice it, if government taxes "income", and your business is set up such that you decide what your "income" is, you can control how much tax you are bound to pay. The only way around it is to make people think that spending more money on more government is a good and sensible thing to do. Or perhaps that spending more money on higher employee payroll is a good and sensible thing to do.
- sokoloff 9y ago
  That is one, but not the only, way around it. Another is to tax things that are very hard to structure around. Taxing land, taxing stock sales (the SEC section 31 fee), taxing retail purchases, etc.

What if you make the rules so simple that there are NO loopholes and there is no/little possibility for tax avoidance?

by jazzyk 9y ago

What if you make the rules so simple that there are NO loopholes and there is no/little possibility for tax avoidance?

This would be an ideal world: > What if you make the rules so simple that there are NO loopholes and there is no/little possibility for tax avoidance? Then we could lower tax "rates", reduce dead weight loss, and increase tax receipts. But no, we've decided, for example, that home ownership is important for everyone so we subsidize home ownership by letting people write off mortgage interest. This has the unintended effect of driving up prices for homes and encouraging people to buy more home than they need. When taxes are too high, it causes pathological behavior. Some people will, even if it nets them less after taxes, minimize taxes paid. "Tax shelters" in the 80's would be all but guaranteed to lose money, and yet people would still buy into them because they would reduce their taxes and pay huge fees based on the total taxes that would be reduced. These arrangements were legal (although the IRS was hawkish on them) but actually made no business sense for investors.

sokoloff 9y ago
Home mortgage interest deduction serves to put the financing of private home ownership on the same footing as financing of commercial house ownership (wherein the interest on loans for income-seeking activities is deductible). Eliminating the MID without eliminating the deductibility of commercial loans' interest makes commercial purchasing of real estate cheaper than private purchasing. IOW, eliminating the MID is a big handout to commercial landlords and serves to keep even more people renting rather than owning their housing.
- aaronchall 9y ago
  > Home mortgage interest deduction serves to put the financing of private home ownership on the same footing as financing of commercial house ownership (wherein the interest on loans for income-seeking activities is deductible). Sounds fair. Can I also reduce my income by furnishing my building (home) with equipment (e.g. furniture and appliances) in the same way that commerce can? Would that make sense? > Eliminating the MID without eliminating the deductibility of commercial loans' interest makes commercial purchasing of real estate cheaper than private purchasing. IOW, eliminating the MID is a big handout to commercial landlords and serves to keep even more people renting rather than owning their housing. There's only so much housing stock. If more are renting, there's more business in renting, but that mostly affects the mid to upper classes. Do we really want to subsidize urban sprawl? Maybe we do. Maybe we should. Should we do it forever? I... don't like it. Maybe all subsidies should have a phase-out/sunsetting period to avoid economic shocks while reducing the plethora of loop-holes and market distortions that they create.
  - sokoloff 9y ago
    > There's only so much housing stock. If more are renting, there's more business in renting, but that mostly affects the mid to upper classes. I'm not following you here. Rental market dynamics affect the lower and middle classes and the rent/buy margin affects the middle class. If the gulf between renting and buying widens (by buying becoming relatively more expensive), how does that not help landlords (mostly upper-middle and upper class), who in turn achieve increased power over the poor and middle classes (vs the status quo)? Every 750 credit score, 2 steady income, $100K household income family who doesn't buy a house but instead rents put pressure on someone worse off in the economic stack-rank.

sharemywin 9y ago

Simpler isn't always better. The simplest rule would be "no violence" but then the court system would have to make a bunch of decisions. is it literal? so is everyone that harms an insect in criminal jeopardy? So, now that we've introduced complexity we need to argue about degree not absolutes.

sharemywin 9y ago

If you believe that too much wealth equates to too much power in a democracy then the simplest tax code would be all wealth over X is taxed at 100% all transgressions are punishable by death. Personally, I think that's a little harsh but some people only see black and white.

brianwawok 9y ago
Hah my hft bot would double stock value of apple for 1 second and a bunch of automatic deaths would be handed down to investors.
- ReverseCold 9y ago
  I think gp said that it would be taxed at 100%, not that one couldn't keep over x at a time.
  - brianwawok 9y ago
    Sure we started at 100% tax, and then moved on to death panels for breaking the rule ;)

charlesdm 9y ago

Because most loopholes are in fact deductions that are there for a reason. The overall tax rate is too high (or it would be too expensive to lower the overall rate), so politicians give certain people sweetheart deals on certain things because they consider it relevant, thus offering someone, somewhere a tax break. Others are then free to use the same deduction for their benefit. The wealthy aren't stupid. They're generally quite pragmatic and flexible when it comes to making money.

jazzyk 9y ago
Most loopholes are aimed at big corporations and high-income people ($1M+). You and I cannot take advantage of them easily. Loopholes: - obfuscate the fact that "certain" people, who should be paying 35% are not, in fact, paying a penny. - give incredible power to the people who decide what "certain" group to reward with them or threaten to withdraw them
- charlesdm 9y ago
  You can actually use them, but probably are not, since you're a high income, high income tax paying person? If you can earn $300k a year as an entrepreneur, vs $300k as an employee, then it's a lot more likely you'll be paying significantly less taxes when going the self employed route.

logfromblammo 9y ago

I think the problem is not with the complexity of the tax code, but that those taxed by it have significant incentive to avoid paying taxes, and have the ability to manipulate information such that they can pay less. No matter how you slice it, if government taxes "income", and your business is set up such that you decide what your "income" is, you can control how much tax you are bound to pay. The only way around it is to make people think that spending more money on more government is a good and sensible thing to do. Or perhaps that spending more money on higher employee payroll is a good and sensible thing to do.

sokoloff 9y ago
That is one, but not the only, way around it. Another is to tax things that are very hard to structure around. Taxing land, taxing stock sales (the SEC section 31 fee), taxing retail purchases, etc.